Chapter-8

Issue of Debentures
Debenture: The word ‘debenture’ has been derived from a Latin word ‘debere’ which
means to borrow.
-Debenture is a written instrument acknowledging a debt under the common seal of
the company.
-It contains a contract for repayment of principal after a specified period or at intervals or at
the option of the company and for payment of interest at a fixed rate payable usually either
half-yearly or yearly on fixed dates.
-According to section 2(30) of The Companies Act, 2013 ‘Debenture’ includes Debenture
Inventory, Bonds and any other securities of a company whether constituting a charge on
the assets of the company or not.
-Bond: Bond is also an instrument of acknowledgement of debt. Traditionally, the Government issued bonds, but these
days, bonds are also being issued by semi-government and non-governmental organisations. The terms ‘debentures’ and
‘Bonds’ are now being used inter-changeably.

Differences between share and debenture

Basis of difference Share Debenture

Returns Dividend may vary from year to Interest on
year depending upon the profits debenture is prefixed.
of the company -It is a charge on profits and
-It is an appropriation of profits is to be paid even if there is
no profit.
Repayment the amount of shares is not the debentures are issued for
returned during the life of the a specified period and
company, repayable on the expiry of
that period.
Security not secured by any charge generally secured and carry
a fixed or floating charge
over the assets of the
company.
Convertibility: cannot be converted into can be converted into shares
debentures if the terms of issue so
provide,

Types of Debentures

a) From the Point of view of Security:

i) Secured Debentures: Secured debentures refer to those debentures where a charge is
created on the assets of the company for the purpose of payment in case of default.
-The charge may be fixed or floating.
 -Fixed charge is created on a specific asset whereas a floating charge is on the general
assets of the company.
-The fixed charge is created against those assets which are held by a company for use in
operations not meant for sale whereas floating charge involves all assets excluding those
assigned to the secured creditors.
ii)Unsecured Debentures: Unsecured debentures do not have a specific charge on the
assets of the company.

b) From the Point of view of Tenure

i) Redeemable Debentures: Redeemable debentures are those which are payable on
the expiry of the specific period either in lump sum or in Instalments during the life
time of the company. Debentures can be redeemed either at par or at premium.
i) Irredeemable Debentures: Irredeemable debentures are also known as Perpetual
Debentures because the company does not give any undertaking for the repayment
of money borrowed by issuing such debentures. These debentures are repayable on
the winding-up of a company or on the expiry of a long period.

c) From the Point of view of Convertibility

i) Convertible Debentures: Debentures which are convertible into equity shares or in
any other security either at the option of the company or the debentureholders are
called convertible debentures. These debentures are either fully convertible or
partly convertible..
ii) Non-Convertible Debentures: The debentures which cannot be converted into
shares or in any other securities are called nonconvertible debentures.

d) From Coupon Rate Point of view

i) Specific Coupon Rate Debentures: These debentures are issued with a specified rate
of interest, which is called the coupon rate. The specified rate may either be fixed or
floating. The floating interest rate is usually tagged with the bank rate.
ii) Zero Coupon Rate Debentures: These debentures do not carry a specific rate of
interest. In order to compensate the investors, such debentures are issued at
substantial discount and the difference between the nominal value and the issue price
is treated as the amount of interest related to the duration of the debentures.

e) From the view Point of Registration

i) Registered Debentures: Registered debentures are those debentures in respect of
which all details including names, addresses and particulars of holding of the
debenture holders are entered in a register kept by the company. Such debentures can
be transferred only by executing a regular transfer deed.
iii) Bearer Debentures: Bearer debentures are the debentures which can be transferred by
way of delivery and the company does not keep any record of the debentures Interest
on debentures is paid to a person who produces the interest coupon attached to such
debentures.
Issue of Debentures:
The procedure for the issue of debentures is the same as that for the issue of shares.
-The company may either ask for the entire amount to be paid on application or by means of
instalments on application, on allotment and on various calls.
-Debentures can be issued at par, at a premium or at a discount.
-They can also be issued for consideration other than cash or as a collateral security.

Issue of Debentures for Cash

Debentures are said to be issued at par when their issue price is equal to the face value.

The journal entries recorded for such issue are :

(a) If whole amount is received in one instalment:

(i) On receipt of the application money
Bank A/c Dr.
To Debenture Application & Allotment A/c

(ii) On Allotment of debentures

Debenture Application & Allotment A/c Dr.

To Debentures A/c

(b) If debenture amount is received in two instalments:

(i) On receipt of application money

Bank A/c Dr.

To Debenture Application A/c

(ii) For adjustment of applications money on allotment

Debenture Application A/c Dr.
To Debentures A/c

(iii) For allotment money due

Debenture Allotment A/c Dr.

To Debentures A/c
(iv) On receipt of allotment money

Bank A/c Dr.

To Debenture Allotment A/c

(c) If debenture money is received in more than two instalments

Additional entries:
(i) On making the first /final call

Debenture First Call/ Final call A/c Dr.

To Debentures A/c

(ii) On the receipt of the first call

Bank A/c Dr.

To Debenture First Call A/c

Q1.ABC Limited issued 10,000, 12% debentures of ₹. 100 each payable ₹ 30 on

application and remaining amount on allotment. The public applied for 9,000 debentures
which were fully allotted, and all the relevant allotment money was duly received. Give
journal entries in the books of ABC Ltd, and exhibit the relevant information in the balance
sheet.
IN THE BOOKS OF ABC LTD

Particulars LF AMOUNT(Dr) AMOUNT (Cr)

Bank A/c……………………………………..Dr 2,70,000

To Debenture Application 2,70,000
(Receipt of application money on 9,000 debentures)
2,70,000
Debenture Application A/c……………………..Dr 2,70,000
12% Debenture A/c
(Transfer of debenture application to 12%
Debenture A/c) 6,30,000
6,30,000
Debenture Allotment A/c…………………… DR
TO 12% Debenture A/c
(allotment money due on 9,000 debentures @₹70
each) 6,30,000
6,30,000
Bank A/c……………………………………….Dr
 To Debenture allotment A/c
(Receipt of allotment money)
---------------------------------------------------------------

Balance sheet as per Schedule III (Part I) of Companies Act 2013

Particulars Note Amount
No
Equity & Liabilities
1. Share- holders funds
2. Non-Current liabilities 2 9,00,000
a) Long term borrowings

Notes to Accounts-2

Particulars Amount
Non- current liabilities
a) Long term borrowings 9,00,000
9,000, 12% Debentures of ₹100 each issued at
par)

TV Components Ltd., issued 10,000, 12% debentures of ₹. 100 each at a

discount of 5% payable as follows:
On application ₹ 40, On allotment ₹55. Show the journal entries including
those for cash, assuming that all the instalments were duly collected. Also show
the relevant portion of the balance sheet.

Discount on debenture=100 x 5/100=₹5

IN THE BOOKS OF TV Components Ltd.
Particulars LF AMOUNT(Dr) AMOUNT (Cr)
Bank A/c…………………………………………………Dr 4,00,000
To Debenutre Application A/c (10,000 x40) 4,00,000
Receipt of application money)
Debenture Application A/c……………………………….Dr 4,00,000
TO 12% Debenture A/c 4,00,000
(Transfer of application money)
Debenture Allotment A/c (10,000 x55)……………….Dr 5,50,000
Discount on issue of debenture (10,000 x5)………….Dr 50,000
To 12% Debenture A/c 6,00,000
(Debenture allotment money due after adjusting discount on
issue)
Bank A/c…………………………………………………..Dr 5,50,000
To, Debenture allotment 5,50,000
 (Receipt of allotment money)
Statement of P/L
Security premium A/c………………………………….Dr 50,000
TO Discount on issue of debenture 50,000

Balance sheet as per Schedule III (Part I) of Companies Act 2013

Particulars Note Amount
No
Equity & Liabilities
1. Share- holders funds

2. Non-Current liabilities 3 9,50,000

b) Long term borrowings

Notes to Accounts

Particulars Amount
No:2
Reserves & Surplus
(Discount on issue of debenture ) (50,000)
No-3
Non- current liabilities 10,00,000
a) Long term borrowings
10,000, 12% Debentures of ₹100 each issued at
a discount of 5%)

3. XYZ Industries Ltd., issued 2,000, 10% debentures of ₹. 100 each, at a premium of Rs.
10 per debenture payable as follows:
On application ₹. 50
On allotment ₹. 60
The debentures were fully subscribed and all money was duly received. Record the
journal entries in the books of a company. Show how the amounts will appear in the
balance sheet.

Premium on issue (security premium =100 x10/100= 10

IN THE BOOKS OF XYZ Industries Ltd.

LF AMOUNT(Dr) AMOUNT (Cr)
Particulars
Bank A/c…………………………………………………Dr 1,00,000
To Debenutre Application A/c (2,000 x50) 1,00,000
Receipt of application money)
Debenture Application A/c……………………………….Dr 1,00,000
TO 10% Debenture A/c 1,00,000
(Transfer of application money)
Debenture Allotment A/c (2,000 x60)……………….Dr 1,20,000
To 10% Debenture A/c (2,000 x50) 1,00,000
To Security premium (2,000 x10) 20,000
(Debenture allotment money due along with security premium )
Bank A/c…………………………………………………..Dr 1,20,000
To, Debenture allotment
(Receipt of allotment money) 1,20,000

Balance sheet as per Schedule III (Part I) of Companies Act 2013

Particulars Note Amount
No
Equity & Liabilities
1. Share- holders funds
Reserves & surplus 2 20,000

2. Non-Current liabilities 3 2,00,000

c) Long term borrowings

Notes to Accounts

Particulars Amount
No:2
Reserves & Surplus
Security premium reserve 20,000
No-3
Non- current liabilities
a) Long term borrowings 2,00,000
2,000, 10% Debentures of ₹100 each issued at a
premium of 10%)

X Limited Issued 10,000, 12% debentures of ₹. 100 each payable ₹. 40 on

application and ₹. 60 on allotment. The public applied for 14,000 debentures.
Applications for 9,000 debentures were accepted in full; applications for 2,000
debentures were allotted 1,000 debentures and the remaining applications, were
rejected. All money was duly received. Journalise the transactions.

Appiled Alloted
9,000 9,000
2,000 1,000
 3,000 Nil
14,000 10,000

IN THE BOOKS OF X Ltd.

Particulars LF AMOUNT(Dr) AMOUNT
(Cr)
Bank A/c…………………………………………………Dr 5,60,000
To Debenutre Application A/c (14,000 x40) 5,60,000
Receipt of application money)
Debenture Application A/c……………………………….Dr 5,60,000
TO 12% Debenture A/c (10,000 x40) 4,00,000
To Debenture allotment (1,000 x40) 1,20,000 40,000
TO Bank (3,000 x40) 1,20,000
(Transfer of application money to Debenture)
Debenture Allotment A/c (10,000 x60)……………….Dr
To 12% Debenture A/c 6,00,000
(Debenture allotment money due ) 6,00,000
Bank A/c…………………………………………………..Dr
To, Debenture allotment 5,60,000
(Receipt of allotment money) 5,60,000

Issue of Debentures for Consideration other than Cash

When a company purchased assets from vendors and instead of making payment in cash
issues debentures for consideration thereof. Such issue of debentures is called debentures
issued for consideration other than cash.

In such a case also, the debentures may be issued at par, at a premium or at a discount.

Journal entries:
1. On purchase of assets
Sundry Assets A/c Dr.
To Vendor’s
2. On issue of debentures
(a) At par
Vendors Dr.
To Debentures A/c
(b) At premium
Vendors Dr.
To Debentures A/c
To Securities Premium Reserve A/c
(c) At a discount
Vendors Dr.
Discount on Issue of Debenture A/c Dr.
To Debentures A/c

Q1. Aashirward Company Limited purchased assets of the book value of ₹. 2,00,000 from
another company and agreed to make the payment of purchase consideration by issuing
2,000, 10% deb
 Answer: Journal entries in the books of Asshirwaded Company Ltd
Particulars LF Amount(Dr) Amount (Cr)
Sundry Assets A/c ………………………..Dr. 2,00,000
To Vendors 2,00,000
(Assets purchased from vendors)
2,00,000
Vendors …………………………………..Dr. 2,00,000
To 10% Debentures A/c
(Allotment of debentures to vendors as
purchase consideration)

Q2. Rai Company purchased assets of the book value of Rs. 2,20,000 from another company and
agreed to make the payment of purchase consideration by issuing 2,000, 10% debentures of
Rs. 100 each at a premium of 10%. Record necessary journal entries.
Answer: Journal entries in the books of RaiCompany Ltd
Particulars LF Amount(Dr) Amount (Cr)
Sundry Assets A/c ……………………….Dr. 2,20,000
To Vendors 2,20,000
(Assets purchased from vendors)
2,20,000
Vendors ………………………………….Dr. 2,00,000
To 10% Debentures A/c 20,000
To Security premium
(Allotment of debentures to vendors as
purchase consideration)

Q3. National Packaging Company purchased assets of the value of Rs. 1,90,000 from another
company and agreed to make the payment of purchase consideration by issuing 2,000, 10%
debentures of Rs. 100 each at a discount of 5%. Record necessary journal entries.

Answer: Journal entries in the books of National Packaging Ltd

Particulars LF Amount(Dr) Amount (Cr)
Sundry Assets A/c………………………. Dr. 1,90,000
To Vendors 1,90,000
(Assets purchased from vendors)
1,90,000
Vendors…………………………………. Dr.
10,000
Discount on issue of debentures A/c…….Dr 2,00,000
To 10% Debentures A/c
(Allotment of debentures to vendors as
purchase consideration)

Sometimes a company may purchase the assets as well as takeover its liabilities of another
concern. It happens usually in case of purchase of the whole business of the other concern.
In such a situation, the purchase consideration will be equal to the value of net assets
(Assets - Liabilities) taken over, and if the whole amount of the consideration is paid by
issue of debentures
 Sundry Assets A/c…………………………………… Dr.
To Sundry Liabilities A/c
To Vendors
(Purchase of the Vendors’ business)

In case of the whole business being taken over, if the amount of debentures issued is
more than the amount of the net assets taken over, the difference (excess) will be
treated as value of goodwill.
Journal entries:
Sundry Assets A/c…………………………………… Dr. (at agreed value)
Goodwill Account …………………………………….Dr (Net worth- Purchase consideration)
To Sundry Liabilities A/c (at agreed value)
To Vendors (Purchase consideration)
(Purchase of the Vendors’ business)

In case of the whole business being taken over and the value of debentures is less than
thevalue of the net assets taken over the difference will be credited to capital Reserve

Journal entries:
Sundry Assets A/c…………………………………… Dr. (at agreed value)
To Sundry Liabilities A/c (at agreed value)
To Vendors (Purchase consideration)
To Capital Reserve (Purchase consideration- Net worth)

(Purchase of the Vendors’ business)

Q1.Blue Prints Ltd., purchased building worth Rs.1,50,000, machinery worth Rs.1,40,000 and
furniture worth Rs.10,000 from XYZ Co., and took over its liabilities of Rs. 20,000 for a
purchase consideration of Rs. 3,15,000. Blue Prints Ltd., paid the purchase consideration by
issuing 12% debentures of Rs.100 each at a premium of 5%. Record necessary journal
entries.

Journal entries in the books of Blue Prints Ltd

Particulars LF Amount Amount
(Dr) (Cr)
Building A/c ……………………………………………..Dr 1,50,000
Plant & Machinery A/c……………………………….. Dr. 1,40,000
Furniture A/c……………………………………………. Dr. 10,000
Goodwill A/c………………………………………..........Dr 35,000 20,000
To Liabilities (Sundry) 3,15,000
To XYZ Co.
(Purchase of assets and taking over of liabilities of XYZ
Co.) 3,15,000
XYZ Co. Dr. 3,00,000
15,000
 To 12% Debentures A/c
To Securities Premium Reserve A/c
(Issue of 3,000 debentures at a premium of 5%

1. Since the purchase consideration is more than net assets taken over, thedifference has
been debited to goodwill account.
2. No. of debentures issued = Purchase Consideration
Issue Price of a Debenture
= Rs. 3,15,000 = 3,000
105

Q2. A Limited took over the assets of Rs. 3,00,000 and liabilities of Rs.10,000 from B &
Co. Ltd., for an agreed purchase consideration of Rs. 2,70,000 to be satisfied by issue of
15% debentures of Rs. 100 at 20% premium. Show the journal entries in the journal of A
Limited.

Journal entries in the books of A Ltd

Particulars LF Amount Amount
(Dr) (Cr)
Sundry Assets A/c ………………………………………..Dr. 3,00,000
To Sundry Liabilities A/c 10,000
To B & Co. Ltd. 2,70,000
To Capital Reserve (Purchased assets and took over 20,000
liabilities from B Ltd.) 2,70,000
B & Co. Ltd. Dr. 2,25,000
To 15% Debentures A/c 45,000
To Securities Premium Reserve A/c
(Issue of 2,250 debentures of Rs 100 each at a premium of
20%)

Issue of Debentures as a Collateral Security

A collateral security may be defined as a subsidiary or secondary or additional
security besides the primary security when a company obtains a loan or overdraft
from a bank or any other financial Institution.
-The lending institutions may insist on additional assets as collateral security so that the
amount of loan can be realised in full with the help of collateral security in case the amount
from the sale of principal security falls short of the loan money.
-In such situation, the company may issue its own debentures to the lenders in addition to
some other assets already pledged. Such an issue of debentures is known as ‘Debentures
issued as Collateral Security’.
- If the debentures are issued as additional security to the lenders of finance in
addition to the primary security for obtaining a loan, such an issue is called
Debentures issued as collateral security.
In such a case , debenture will become liability only when the primary security is
not sufficient to pay off the loan.
Debentures issued as collateral security can be dealt within two ways in the
books of the company:
First Method
No entry is made in the books of accounts since no liability is created by such issue.
However, on the liability side of the balance sheet, below the item of loan, a note to the
effect that it has been secured by issue of debentures as a collateral security is appended.

Q1
X Company has issued 9%, 10,000 debentures of Rs.100 each for a loan of Rs.10, 00,000
taken from a bank. This fact may be shown in the balance sheet as under:
In the Books of X Ltd
Balance sheet
Particulars Note Amount
No
Equity and Liabilities
1. Non-current Liabilities
a) Long-term borrowings 1 10,00,000

Notes to Accounts-1
Long-term borrowings
Bank Loan 10,00,000
(Secured by issue of 10,000, 10% debentures of Rs. 10 each
as Collatoral Security)
Second Method
The issue of debentures as a collateral security may be recorded by means of journal entry

Debenture Suspense A/c…………………………………………. Dr.

To ----% Debentures A/c
For cancellation of 9% debentures as collateral security on repayment of bank loan
------% Debentures A/c………………………………………….. Dr.
To Debenture Suspense A/c

Eg: Issue of 10,000, 9% debentures of Rs. 100 each as collateral security for bank loan of ₹.
10,00,000.

Particulars LF Amount (Dr) Amount (Cr)

Debenture Suspense A/c………. ……….Dr. 10,00,000
To 9 % Debentures A/c 10,00,000
(9& debentures issued as collateral security)
Balance sheet
Particulars Note Amount
No
Equity and Liabilities
1. Non-current Liabilities
1 10,00,000
 a) Long-term borrowings
Notes to Accounts-1
Long-term borrowings
Bank Loan 10,00,000
9% Debenture 10,00,000
Less: Debenture Suspense A/c (10,00,000)
0
(Secured by issue of 10,000, 10% debentures of Rs. 10 each
as Collatoral Security)

Q1. company took a loan of ₹. 10,00,000 from Punjab National Bank and issued 10% debentures
of Rs. 12,00,000 of ₹. 100 each as a collateral security. Explain how you will deal with the
issue of debentures in the books of the company

1st Method
Balance sheet
Particulars Note Amount
No
Equity and Liabilities
1. Non-current Liabilities
a) Long-term borrowings 1 10,00,000

Notes to Accounts-1
Long-term borrowings
Bank Loan 10,00,000
(Secured by issue of 12,000, 10% debentures of Rs. 10 each
as Collatoral Security)

2nd Method
Journal entry
Particulars LF Amount (Dr) Amount (Cr)
Debenture Suspense A/c………. ……….Dr. 10,00,000
To 9 % Debentures A/c 10,00,000
(9& debentures issued as collateral security)
Balance sheet
Particulars Note Amount
No
Equity and Liabilities
1. Non-current Liabilities
a) Long-term borrowings 1 10,00,000
Notes to Accounts-1
Long-term borrowings
Bank Loan 10,00,000
9% Debenture 12,00,000
Less: Debenture Suspense A/c (12,00,000)
 0
(Secured by issue of 10,000, 10% debentures of Rs. 10 each
as Collatoral Security)

Terms of Issue of Debentures:

When a company issues debentures, it usually mentions the terms on which they will be
redeemed on their maturity.
-Redemption of debentures means discharge of liability on account of debentures by
repayment made to the debenture holders.
-Debentures can be redeemed either at par or at a premium

Depending upon the terms and conditions of issue and redemption of debentures, the
following six situations are commonly found in practice.
(i) Issued at par and redeemable at par
(a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(Receipt of application money)

(b) Debenture Application & Allotment A/c Dr.

To Debentures A/c
(Allotment of debentures)

(ii) Issued at discount and redeemable at par

a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(Receipt of application money)

(b) Debenture Application & Allotment A/c Dr.

Discount on Issue of Debentures A/c Dr.
To Debentures A/c
(Allotment of debentures at a discount)

(iii) Issued at a premium and redeemable at par

a) Bank A/c Dr.

To Debenture Application & Allotment A/c
(Receipt of application money)

(b) Debenture Application & Allotment A/c Dr.

To Debentures A/c
To Securities Premium Reserve A/c
(Allotment of debentures at a premium)

(iv) Issued at par and redeemable at a premium

 (a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(Receipt of application money)

(b) Debenture Application & Allotment A/c Dr.

Loss on Issue of Debentures A/c Dr. (with premium on redemption)
To Debentures A/c (with nominal value of debenture)
To Premium on Redemption (with premium on redemption of Debenture
A/c)
(Allotment of debentures at par and redeemade at a premium)

(v) Issued at a discount and redeemable at a premium

a) Bank A/c Dr.

To Debenture Application & Allotment A/c
(Receipt of application money)

b) Debenture Application & Allotment A/c Dr.

Loss on Issue of Debentures A/c Dr. (with discount on issue plus premium on
redemption)
To Debentures A/c (with nominal value of debenture)
To Premium on Redemption (with premium on redemption of
Debentures A/c)
(Allotment of debentures at a discount and redeemable at premium)

(vi) Issued at a premium and redeemable at a premium

a) Bank A/c Dr.

To Debenture Application & Allotment A/c
(Receipt of application money)

b) Debenture Application & Allotment A/c Dr.

Loss on Issue of Debentures A/c Dr. (with premium on redemption)
To Debentures A/c (with nominal value of debenture)
To Securities Premium Reserve A/c (with premium on issue)
To Premium on Redemption of (with premium on redemption
Debentures A/c

1. When debentures are redeemable at a premium, the premium payable on redemption is

debited to ‘Loss on Issue of Debentures A/c’. It may be noted that when debentures are
issued at a discount and are redeemable at a premium, the amount of discount on issue is
also debited to ‘Loss on Issue of Debentures’. It may be noted that when the debentures are
issued at a discount and are redeemable at par, the amount debited to ‘Discount on
Issue of Debentures A/c’ as usual.
2. Premium on redemption is a liability of a company payable in future. It is a provision and is
shown under the head Non-current liabilities under subhead ‘Long-term Borrowings’ until
debentures are redeemed.

Give Journal entries for the following:

1. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at par and redeemable at par
2. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at premium of 5% but redeemable at
par.
3. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at discount of 5% repayable at par.
4. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at par but repayable at a premium of
5%.
5. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at discount of 5% but redeemable at
premium of 5%.
6. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at premium of 5% and redeemable at
premium of 5%.

Case Particulars LF Amount(Dr) Amount

(Cr)
1 Bank A/c……………………………………… 1,00,000
Dr 1,00,000
To Debenture Application & allotment
(Receipt of application money) 1,00,000
1,00,000
Debenture Application & Allotment A/c……Dr
To 9% Debenture A/c 1,05,000
2 (Transfer of application money to 9% debenture) 1,05,000
Bank A/c………………………………………
Dr 1,05,000
To Debenture Application & allotment 1,00,000
(Receipt of application money along with 5,000
security premium)
Debenture Application & Allotment A/c……Dr 95,000
3 To 9% Debenture A/c 95,000
To Security premium Reserve
Transfer of application money to 9% debenture 95,000
and security premium) 5,000 1,00,000
Bank A/c………………………………………
Dr
4 To Debenture Application & allotment 1,00,000
(Receipt of application money) 1,00,000
Debenture Application & Allotment A/c……Dr
Discount on issue of debenture A/c…………Dr 1,00,000
To 9% Debenture A/c 5,000
(Transfer of application money to 9% debenture 1,00,000
after adjusting discount) 5,000
Bank A/c………………………………………
 5 Dr 95,000
To Debenture Application & allotment 95,000
(Receipt of application money)
95,000
Debenture Application & Allotment A/c……Dr
15,000
Loss on issue of debenture A/c………………Dr
To 9% Debenture A/c 1,00,000
To Premium on Redemption of Debenture 10,000
(Transfer of application money to debenture A/c
and adjusted loss on issue of debenture)
6 Bank A/c……………………………………… 1,10,000
Dr 1,10,000
To Debenture Application & allotment
(Receipt of application money) 1,10,000
Debenture Application & Allotment A/c……Dr 5,000
Loss on issue of debenture A/c………………Dr 1,00,000
(Discount on issue+ premium on redemption) 10,000
To 9% Debenture A/c 5,000
To Premium on redemption of debenture
(Transfer of application money to debenture after
adjusting discount on issue and premium on
redemption)
Bank A/c………………………………………
Dr
To Debenture Application & allotment
(Receipt of application money)
Debenture Application & Allotment A/c……..Dr
Loss on issue of debenture A/c…………….…
Dr
(premium on redemption)
To 9% Debenture A/c
To Security premium Reserve A/c
To Premium on redemption of debenture
(Transfer of application money along with
premium after adjusting loss on issue of
debenture)
Discount on issue=5%
1,00,000 x5/100= 5,000
Premium on redemption=10%
1,00,000 x10/100= 10,000
Therefore total loss on issue of debenture=5,000+10,000=15,000

Q2.You are required to pass the journal entries relating to the issue of the debentures in the
books of X Ltd., under the following cases:
(a) 120, 8% debentures of Rs. 1,000 each are issued at 5% discount and repayable at par.
Balance in Securities Premium Reserve is Rs. 10,000
 b) 150, 7% debentures of Rs. 1,000 each are issued at 5% discount and repayable at
premium of 10%. Balance in Securities Premium Reserve is Rs. 20,000.
(c) 80, 9% debentures of Rs. 1,000 each are issued at 5% premium.
(d) Another 400, 8% debentures of Rs. 100 each are issued as collateral security against a
loan of Rs. 40,000.

Case Particulars LF Amount(Dr) Amount (Cr)

a) Bank A/c 1,14,000
……………………………………..Dr. 1,14,000
To Debenture Application and Allotment A/c
(Debenture application money received) 1,14,000
6,000
Debenture Application and Allotment A/c…. Dr. 1,20,000
Loss on Issue of Debentures A/c…………… Dr
To 8% Debentures A/c
(Debentures application money transferred to 8,000
8,000
Debentures account
b) Securities Premium Reserve A/c………….... Dr. 1,42,500
To Loss on Issue of Debentures A/c. 1,42,500
(Loss on issue of debentures written-off)
Bank A/c 1,42,500
……………………………………..Dr. 22,500 1,50,000
To Debenture Application and Allotment A/c 15,000
(Debenture application money received)
Debenture Application and Allotment A/c…. Dr.
Loss on Issue of Debentures A/c…………… Dr
20,000
To 8% Debentures A/c
2,500 22,500
To Premium on redemption of debenture
c) (Debentures application money transferred to
Debentures account 84,000 84,000
Security Premium Reserve A/c Dr.
Statement of Profit and Loss
To Loss on Issue of debentures A/c 84,000 80,000
(Loss on issue of debentures written-off) 4,000
d) Bank A/c
. 40,000
c) ……………………………………..Dr. 40,000
To Debenture Application and Allotment A/c
(Debenture application money received)
Debenture Application & Allotment A/c……Dr
To 9% Debenture A/c
To Security premium Reserve
(Transferof application money to debenture A/c)
Debenture Suspense A/c Dr
To 8% Debentures A/c
(Issue of 400, 8% debentures of Rs. 100 each as
collateral security against a loan of Rs. 40,000)
 Interest on Debentures
When a company issues debentures, it is under an obligation to pay interest thereon at fixed
percentage (half yearly) periodically until debentures are repaid.
-Interest payable is calculated at the nominal value of debentures.
-Interest on debenture is a charge against the profit of the company and must be paid whether the
company has earned any profit or not.
-According to Income Tax Act, 1961, a company must deduct income tax at a prescribed
rate from the interest payable on debentures if it exceeds the prescribed limit. It is
called Tax Deducted at Source (TDS) and is to be deposited with the tax authorities.
1. When interest is due
Debenture Interest A/c……………………………….. Dr.
To Income Tax payable/ TDS Payable A/c
To Debentureholders A/c
(Amount of interest due on debenture and tax deducted at source )
2. For payment of interest to debentureholders
Debentureholders A/c………………………………….. Dr.
To Bank A/c
(Amount of interest paid to debentureholders)
3. On transfer debenture Interest Account to statement of Profit and Loss
Statement of Profit and Loss ………………………………Dr.
To Debenture Interest A/c
(Debenture interest transferred to profit and loss A/c)
4. On payment of tax deducted at source to the Government
Income Tax Payable A/c/ TDS Payable …………………. Dr.
To Bank A/c
(Payment of tax deducted at source on interest on debentures
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Q1. A Ltd., issued 2,000, 10% debentures of ₹. 100 each on April 01, 2016 at a discount of
10% redeemable at a premium of 10%. Give journal entries relating to the issue of
debentures and debenture interest for the period ending March 31, 2017 assuming that
interest was paid half yearly on September 30 and March 31 and tax deducted at source is
10%.
Date Particulars LF Amount(Dr) Amount (Cr)
2016 Bank A/c……………………………..Dr 1,80,000
April-1 To Deb. Appli & allotment 1,80,000
(Receipt of application money)
1,80,000
Deb. Appli & allotment A/c…………Dr
40,000
Loss on issue of debenture A/c………Dr 2,00,000
TO 10% Debenture A/c 20,000
TO premium on redemption of
debenture
Sept-30 (Transfer of application money to 10,000
debentures) 1,000
 Interest on Debenture A/c…………..Dr 9,000
To TDS Payable
To Debenture holders A/c 9,000
(Half yearly interest due to debenture 9,000
holders)
2017 Debenture holders A/c………………..Dr 10,000
March-31 To Bank 1,000
(Payment to debenture holders) 9,000
Interest on Debenture A/c…………..Dr
To TDS Payable
To Debenture holders A/c 9,000
(Half yearly interest due to debenture 9,000
holders) 2,000
Debenture holders A/c………………..Dr 2,000
To Bank
(Payment to debenture holders) 20,000
TDS payable A/c…………………….Dr 20,000
To Bank
(Payment of TDS deducted)
Statement of P/L ……………………Dr
To Interest on debenture a/c
(Transfer of debenture interest to
Statement of P/L)

Total value of debenture=2,000 x100=2,00,000

Interest on debenture= 2,00,000 x10/100= 20,000
Half yearly interest= 20,000 x6/12 =10,000
TDS payable=10%
10,000 x10/100= 1,000
Q2. Laser India Ltd. Issued 7,00,000, 8% debentures of Rs. 100 each at par. Interest is to be paid
on these debentures half-yearly on September 30 and March 31, every year. Record necessary
journal entries asuming that income tax is deducted @ 10% of the amount of interest.

Half yearly Interest on debenture=7,00,00,000 x8/100 x6/12 =28,00,000

TDS =28,00,000 x10/100 =2,80,000

Date Particulars LF Amount(Dr) Amount (Cr)

Bank A/c……………………………..Dr 7,00,00,000
To Deb. Appli & allotment 7,00,00,000
Sept-30 (Receipt of application money)
28,00,000
Interest on Debenture A/c…………….Dr 2,80,000
To TDS Payable 25,20,000
To Debenture holders A/c
 (Half yearly interest due to debenture
holders) 25,20,000
25,20,000
Debenture holders A/c………………..Dr
March -31 To Bank 28,00,000
(Payment to debenture holders) 2,80,000
Interest on Debenture A/c…………….Dr 25,20,000
To TDS Payable
To Debenture holders A/c 25,20,000
(Half yearly interest due to debenture 25,20,000
holders)
Debenture holders A/c………………..Dr
5,60,000
To Bank
5,60,000
(Payment to debenture holders)
TDS payable A/c…………………….Dr 56,00,000
To Bank 56,00,000
(Payment of TDS deducted)
Statement of P/L ……………………Dr
To Interest on debenture a/c
(Transfer of debenture interest to Statement
of P/L)

Writing off Discount/Loss on Issue of Debentures

Discount or Loss on issue of debentures is a capital loss and is written-off in the year when
debentures are issued
- Discount or loss can be written-off from securities premium reserve [section 52(2)]. In
case, capital profit do not exist or are inadequate, the amount should be written off against
revenue profits of the year.

Journal entry:
Securities Premium Reserve A/c Dr. [If exists to the extent of balance]
Statement of Profit and Loss Dr.
To Discount/Loss on Issue of Debentures A/c

Q1. On April 01, 2019 a company issued 15,000, 9% debentures of Rs. 100 each at 10%
discount. It has a balance of Rs. 1,00,000 in a securities premium reserve account. Pass
journal entries for issue of debenture and writing off discount on issue of debentures

Debenture discount=15,00,000 x10/100=1,50,000

Date Particulars LF Amount(Dr) Amount(Cr)

2019 Bank A/c……………………..Dr 13,50,000
April-1 To Deb. Appli & allotment 13,50,000
(Receipt of application money)
 Debenture Appli & llotment……….Dr 13,50,000
Discount on issue of Debenture……Dr 1,50,000
To 9% Debenture A/c 15,00,000
(Transfer of application money)
1,00,000
Security premium A/c…………….Dr
50,000 1,50,000
Statement of P/L ………………....Dr
To Interest on debenture A/c
(Writing off debenture discount from
security premium reserve and the
balance from statement of P/L)

Q2. X Ltd. issued 2,000, 10% debentures of Rs. 100 each at a discount of 8% on April 01, 2019
which are redeemable. It has balance in Securities Premium Reserve of Rs. 30, 000.
Calculate the amount to be written-off from securities Premium Reserve.

Total value of debentures=2,000 100=2,00,000

Discount on issue of debenture= 2,00,000 x8/100=16,000

The available balance in security premium reserve=30,000

Therefore the discount written off from s.premium reserve=16,000 only.

Q3. Rohit
Ltd. has issued 50,000, 8% debentures of Rs. 100 each at a discount of 9% on July 1,
2019. The company has balance of Rs. 5,00,000 in securities premium reserve. Pass
necessary journal entries for issue of debentures and to write-off discount/Loss on issue of
debentures. The debentures are redeemable after 5 years at a premium of 7%.

Journal entries in the Books of Rohit Ltd

Date Particulars LF Amount(Dr) Amount(Cr)
2019 Bank A/c……………………..Dr 45,50,000
July-1 To Deb. Appli & allotment 45,50,000
(Receipt of application money)
45,50,000
Deb. Appli & allotment A/c………Dr 50,00,000
8,00,000
Loss on issue of debenture A/c……Dr 3,50,000
To10% Debenture A/c
To premium on redemption of
debenture
(Transfer of application money to 5,00,000
debentures) 3,00,000
Security premium A/c…………….Dr 8,00,000
Statement of P/L ………………....Dr
To Loss on issue of debenture A/c
(Writing off debenture discount from
security premium reserve and the
balance from statement of P/L)
Q3. Fiza Ltd. has issued ₹15,00,000, 9% debentures of ₹. 20 each at a discount of ₹. 6 per
debenture on October 01, 2019. The company has a balance of ₹. 1,00,000 in securities
premium reserve account on the same date. Pass necessary journal entries for issue of
debentures and to write off discount on issue of debentures.

Discount on issue=15,00,000 x6/100=90,000

Journal entries in the Books of Fiza Ltd
Date Particulars LF Amount(Dr) Amount(Cr)
2019 Bank A/c……………………..Dr 14,10,000
Oct-1 To Deb. Appli & allotment 14,10,000
(Receipt of application money)
14,10,000
Deb. Appli & allotment A/c………Dr
90,000
Discount on issue of debenture A/cDr 15,00,000
To 9% Debenture A/c
(Transfer of application money to
debentures) 90,000
90,000
Security premium A/c…………….Dr
To Discount on issue of debenture
(Writing off discount on issue of
debenture from security premium
reserve)

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